6.) "Since peaking in 1976, per capita beef consumption in the United States has fallen by 28.6 percent... [and] the size of the U.S. cattle herd has shrunk to a 30-year low."
a.) Using firm and industry diagrams, show the short-run effect of declining demand for beef. Label the diagram carefully and write out in words all of the changes you can identify.
Would the shrinking of the herd lower marginal costs? I'm not so sure about this one.
b.) On a new diagram, show the long-run effect of declinding demand for beef. Explain in words.
Wouldn't the long run effect just be the firm decreasing the quantity supplied?
9.) Suppose that the U.S. textile industry is competitive, and there is no international trade in textiles. In long-run equilibrium, the price per unit of cloth is $30.
a.) Describe the equilibrium using graphs for the entire market and for an individual producer.
Now suppose that textile producers in other countries are willing to sell large quantities of cloth in the United States for only $25 per unit.
b.) Assuming that the U.S. textile producers have large fixed costs, what is the short-run effect of these imports on the quantity produced by an individual producer? What is the short run effect on profits? Illustrate your answer with a graph.
Even though I have no idea what graph to use, I imagine given that the firm has large fixed costs, they'd decrease production and take a hit on profits.
c.) What is the long-run effect on the number of U.S. Firms in the industry?
6a) With shrinking beef consumption, which beef production operations (including ranchers, and meat packagers) will be shut-down? The high-cost producers or the low-cost producers? I would go with 'yes', marginal costs will be lower.
b) I agree.
9a) In a competitive industry, the demand curve FACED BY A SINGLE FIRM, is simply a flat line. In this example demand, firm demand=price=$30. The firm has rising marginal costs, so the firm produces where MC=P.
9b) drop the demand line to $25. Producer surplus is represented by the area above MC but below price, With the drop to $25, what happened to that area? Profits would be producer surplus less fixed costs (which are not represented on the graph). Since producer surplus got smaller, the firm took a hit on profits.
9c) Switch graphs, now graph an industry-wide supply curve (of domestic producers).
9b)
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a.) To show the short-run effect of declining demand for beef using firm and industry diagrams, we can use a standard supply and demand diagram. On the diagram, the horizontal axis represents the quantity of beef and the vertical axis represents the price of beef.
1. Start by drawing a downward-sloping demand curve, representing the declining demand for beef. Label it as "D1."
2. Draw an upward-sloping supply curve, representing the supply of beef. Label it as "S1."
3. The initial equilibrium is where the demand curve intersects the supply curve. Label this point as "E1," indicating the initial equilibrium price (P1) and quantity (Q1).
4. Due to declining demand, the demand curve shifts to the left. Draw a new demand curve, labeled as "D2," to the left of D1.
5. The new equilibrium is where the new demand curve intersects the supply curve. Label this point as "E2," indicating the new equilibrium price (P2) and quantity (Q2).
6. In words, the changes can be identified as a decrease in price (P1 to P2) and a decrease in quantity (Q1 to Q2) due to declining demand for beef.
b.) To show the long-run effect of declining demand for beef, we need to consider the adjustment process for firms in the industry. In the long run, firms have the flexibility to adjust their production capacity and there can be entry or exit of firms in the industry.
1. Start with a new supply curve, labeled as "S2," representing the long-run equilibrium.
2. Initially, the supply curve might be backward-bending, indicating diminishing marginal returns. This means that as more firms enter the industry, the marginal costs might increase, resulting in an upward-sloping supply curve.
3. Due to declining demand, the demand curve shifts to the left as mentioned in part 'a.'
4. In the long run, the industry adjusts to the new equilibrium by firms exiting the industry, leading to a decrease in the supply of beef.
5. As firms exit the industry, the supply curve shifts back to the left, finally reaching a new long-run equilibrium (labeled as "S3") where supply and demand intersect again.
6. In words, the long-run effect is a decrease in the quantity supplied as firms exit the industry to adjust to the declining demand for beef.
Regarding the shrinking of the herd and its effect on marginal costs, it might not necessarily lower marginal costs. The relationship between herd size and the cost of production is complex, and there are factors like feed costs, labor costs, and economies of scale that also play a role.
For question 9:
a.) The equilibrium in the U.S. textile industry can be shown using a standard supply and demand diagram. The horizontal axis represents the quantity of cloth, and the vertical axis represents the price per unit of cloth.
1. Draw a downward-sloping demand curve, representing the demand for cloth in the U.S. market. Label it as "D1."
2. Draw an upward-sloping supply curve, representing the supply of cloth by U.S. textile producers. Label it as "S1."
3. The equilibrium is where the demand curve intersects the supply curve. Label this point as "E1," indicating the equilibrium price of $30 and quantity produced.
4. This equilibrium represents the long-run equilibrium in the absence of international trade.
b.) Assuming that textile producers in other countries are willing to sell large quantities of cloth in the U.S. for only $25 per unit, the short-run effect can be illustrated using a new graph. This graph should focus on the quantity produced by an individual producer rather than the entire market.
1. On the horizontal axis, plot the quantity of cloth produced by an individual producer.
2. On the vertical axis, plot the price per unit of cloth.
3. Draw an upward-sloping supply curve for the individual producer, representing the marginal cost of production and the short-run average variable cost curve.
4. Initially, the equilibrium point might be where the supply curve intersects the demand curve, indicating a price of $30 per unit and a corresponding quantity produced.
5. When lower-priced imports enter the U.S. market, the demand curve for the individual producer's product will shift to the left.
6. The new equilibrium will result in a decrease in the quantity produced by the individual producer, as the lower price of imports reduces the demand for domestically produced cloth.
7. The short-run effect on profits will depend on the individual producer's cost structure. If the lower price reduces revenues more than it reduces costs, profits will decrease.
c.) The long-run effect on the number of U.S. firms in the industry will depend on the competitiveness of the market and the ability of firms to adapt to changing market conditions.
1. If U.S. textile producers are unable to compete with the lower-priced imports in the long run, some firms may exit the industry.
2. As firms exit, the supply of cloth in the U.S. market will decrease.
3. If the remaining firms can adjust their production techniques, improve efficiency, or differentiate their products, they might be able to maintain their presence in the industry.
4. Ultimately, the long-run effect on the number of U.S. firms will depend on how well they can adapt to the new market conditions.